Blockchain and the public sector – What happened in 2016

Blockchain, also known as Distributed Ledger Technology (DLT), was the technology buzzword of 2016. The technology has been around since 2008. It underpins the digital cryptocurrency, Bitcoin and was conceptualised as a solution to the problem of making a database both secure and not requiring a trusted administrator.

But 2016 was the year when its full potential began to be understood. Blockchain provides a fundamentally new way of conducting digital transactions. Its very structure eliminates the need for middlemen ensuring trust and make transactions more efficient, reducing time required to completion and reducing risk of fraud. Transactions are verified by a network of unrelated computers based on software and stored in immutable blocks, secured by hashing (there has been talk of private redactable Blockchains, raising questions on what are the essentail aspects of Blockchain). Every computer in the de-centralised system has a copy of every transaction in the form of the Blockchain or ledger.

Blockchain has potential applications in areas ranging from banking and insurance industries to media and law and government services. It can transform trading, payment infrastructures, contracts, identity management, data storage and more.

There are public and private versions, with the latter creating stringently permission-controlled ecosystems, in contrast to the open, permission less system of the former. Both have their benefits and uses.

Most applications are in the testing phase at the moment, as pros and cons are being weighed and obstacles tackled. But we are definitely in the Early Adoption phase now.

The finance industry was the first to jump on to the bandwagon and banks are investing heavily in using the technology for clearing and settlement, wholesale payments, equity and debt issuance and reference data. An IBM report in September predicted that 15% of banks worldwide will widely implement Blockchain by 2017. Consequently, monetary authorities of several countries, from China to the US are looking at how to regulate its use.

Most governments are still feeling their way around this new technology, exploring its potential and risks and figuring out how to regulate its usage. E-voting, land or asset registries and identity management are the areas most governments are starting off with. Some governments such as Dubai are placing significant bets on Blockchain, piloting a diverse array of applications and galloping ahead of their peers.

In an era of austerity and budget cuts in the midst of continuing economic slowdown, Blockchain could provide a lifeline for the public sector, by boosting efficiencies and productivity, streamlining and integrating processes, monitoring performance and enhancing transparency Several government functions could move from periodic to real-time, for instance, audits, which would happen not once a year but every few minutes.

The below is a (non-exhaustive) compilation of government initiatives and explorations in the area of Blockchain during 2016 in alphabetical sequence by country:

Australia

Setting international standards- Setting standards is a crucial step before any new technology can go mainstream. In April 2016, Standards Australia submitted a proposal for developing new international standards on blockchain technology and electronic distributed ledger technologies. The proposal was considered by the 161 member countries of International Organization for Standardization (ISO) and approved in September.

Review in-progress by DATA 61– CSIRO’s data analysis unit, Data61 is in the process of conducting a review to examine the potential and implications of Blockchain technology for both government and industry. Potential ‘proof of concept’ projects will be evaluated in conjunction with industry experts and across government. Currently the webpage mentions demos on ‘Data Monetization’ and ‘Securely sharing sensitive data across organizations’.

Voting- In August, Australia Post presented a plan to the Victorian Electoral Matters Committee to use Blockchain for voting. The process was described as, "We envisage a vote being an electronic transaction whereby a number of voting 'credits' can be 'spent' by the voter to attribute preferences. Permission to vote would be secured through the use of secure digital access keys sent securely to each voter. A ballot would be cryptographically represented within the blockchain, with each vote linked to the voter through their preference choice stored within the blockchain in a way that anonymises and protects that information from being publically accessible." It will start with corporate and community elections before scaling up to parliamentary elections.

Transportation charging and funding- A report title, ‘The Land Transport Regulation 2040’, by the National Transport Commission (NTC) mentioned that Blockchain could provide a potential foundation for a fairer, more transparent, and more sustainable, transport charging and funding model, by enabling ‘stable, trusted, interoperable and secure data communications within transport, and between transport and other service providers.’

Dubai (UAE)

Leveraging Public-Private Partnership- In February, Dubai Museum of the Future Foundation announced the launch of Global Blockchain Council (GBC), with 32 members, including government entities, international companies, leading UAE banks, free zones, and international Blockchain technology firms.

Range of pilot projects- In June, the GBC announced 7 pilot projects, in the areas of tourism, inheritance and property transfer, diamond verification and trade, health records and digital financial transaction services.

Government documents- In October, plans were announced by the Crown Prince, His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, to use Blockchain technology for all government documents by 2020. This announcement was made in conjunction with the launch of the Dubai Blockchain strategy. The strategy has three specified objectives of Government Efficiency, Creating new specialized sectors and achieving global leadership.

Real estate database and loyalty points- Among 19 approved projects, with AED120 million in allocated investment at the end of the first cycle of the Dubai Future Accelerators Program, there were two Blockchain based projects. The first aims to develop a real estate database using Blockchain technology and the second seeks to create the “Internet of Loyalty Points, Promotions, and Rewards” also using Blockchain technology

Estonia

E-residency– It is a first-of-a-kind a transnational digital identity using which the holder can create an Estonian company online and administer it from anywhere in the world. E-residents can digitally sign documents and contracts, verify the authenticity of signed documents, encrypt and transmit documents securely, access online payment service providers and declare Estonian taxes online. The immutability of Blockchain ensures that the data cannot be manipulated and engenders trust.

All three nations have embarked on projects to use Blockchain for land registries, in an attempt to bypass corruption in government officials.

Hong Kong

Exploratory white paper- The Hong Kong Monetary Authority (HKMA) set up a Fintech Facilitation Office (FFO) in March 2016. FFO commissioned the Hong Kong Applied Science and Technology Research Institute (ASTRI) to conduct a research project on the subject of DLT. The key objectives are to carry out an examination of the technology (including its potential, risks, and regulatory implications); and to identify possible applications of DLT to banking services by engaging in proof-of-concept work. A white paper was released as the first stage of the project in November 2016.

Property valuations- As of October 2016, a DLT prototype for carrying out property valuations for use in the mortgage loan was being tested by ASTRI. ASTRI was also working on proof-of-concepts in the areas of trade finance and digital identity management. The above mentioned white paper provides a detailed analysis of the lessons learned, the experience of implementing them, along with benefits and recommendations.

Japan

Fintech Center- The Bank of Japan established its "FinTech Center" on April 1 in the Payment and Settlement Systems Department. It said that Blockchain challenges the conventional concepts of ledgers kept by a trusted third party in a centralized manner and has the potential to change the structure of financial services.

Singapore

In a speech in May, Dr. Vivian Balakrishnan, Minister for Foreign Affairs and Minister-In-Charge of the Smart Nation Initiative said that he believes that Blockchain technology is ‘something profound’ but that we don’t know yet what will or won’t work. He spoke about creating a “regulatory sandbox” for financial institutions and Fintech companies that creates a safe and conducive space for innovation, within which the consequences of failure can be contained. MAS announced regulatory guidelines for the sandbox at the Singapore Fintech Festival in November, based on industry feedback and tested against the applications they had already received.

Cross-Border Interbank Payments: The Monetary Authority of Singapore (MAS) announced in November that it is exploring Blockchain-based infrastructure for Cross-Border Interbank Payments. A proof-of-concept project has been initiated with a consortium, comprising MAS, the Singapore Exchange, and eight banks, Bank of America Merrill Lynch, The Bank of Tokyo-Mitsubishi UFJ, Ltd, Credit Suisse, DBS Bank Ltd, The Hongkong And Shanghai Banking Corporation Limited, JP Morgan, OCBC Bank, United Overseas Bank. The project is in partnership with R3, a Blockchain technology company.

Sweden

Land registry- In June, Reuters reported that the Swedish Land Registry had started tests to put the country's land registry system on Blockchain. The real estate transactions will be put on blockchain once the buyer and seller agree on a deal and a contract is made and from that point onwards, all parties involved, the banks, the government, brokers, buyers, and sellers, can track the progress of the deal.

UK

Monitoring research grants- In April, plans were announced to use Blockchain to improve the efficiency of taxpayer money distributed as grants to agencies and partners for research and innovation.

Blockchain as a Service (BaaS)- In August, a platform for deploying and managing blockchain applications and services was made available to the UK public sector. It is meant for the agencies to develop DLT based proofs-of-concept and large scale identity use cases.

US

Uses in Health IT- In September, the Department of Health and Human Services’ Office of the National Coordinator for Health Information Technology announced the winners of the Use of Blockchain in Health IT and Health-related Research Challenge. The winning proposals focused on a range of outcomes, from boosting privacy and security, improving data integrity and enabling at-scale interoperability for information exchange to counterfeit drug prevention and more.

Federal Reserve’s explorations in DLT for payments, clearing, and settlement- The Federal Reserve published a report on the use of DLT in processing financial transactions, examining potential opportunities, business, technical, financial design and legal considerations.

State-level initiatives- In November 2016, a consortium of Illinois state and county agencies announced the official launch of the Illinois Blockchain Initiative for the purpose of promoting a welcoming regulatory environment for innovative digital currency and Blockchain companies wanting to do business in Illinois. Earlier in the year, Delaware, where the maximum number of companies are incorporated in the US, announced that is exploring Blockchain to make its paperwork more efficient.

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